Any company could reduce IT costs

According to Jeppe Hedaa, CEO and owner of leading IT consulting agency 7N, companies could save more than 50-60 percent on their IT – and these numbers are not even aggressive. 

Looking at the human factor only, the numbers become even more dramatic, says Hedaa. By increasing the efforts to hire IT top performers (instead of just adding headcount) companies could in fact reduce spending by around 88 percent, claims Hedaa.

However, people do not work in isolation. Other factors will have a drag effect on IT performance – such as how the company is organized (for example the level of bureaucracy) or the level of complexity of the IT environment (including legacy systems and architecture). This is why Hedaa arrives at the more “conservative” number of 50-60 percent.

The root cause for high IT costs is that companies cannot measure IT performance

Why are companies consistently spending too much on their IT? The root cause of the problem, according to Hedaa, is that companies are not able to measure their IT performance, and that is particularly true on a high level. In addition, senior management does not really understand how an IT department works, so, to be on the safe side, they continue to allocate more money to it and hope for the best.

Cloud technology and digitalization are transforming the way companies work. Not long ago, the Marketing department had access to a very limited amount of data for measuring the effectiveness of campaigns. Now, as marketing is becoming increasingly digitalized, Marketing managers need to be very selective in their choice of KPIs in order not to drown in data.

Surprisingly enough, for the IT department, the situation is quite the opposite. On an aggregate level, with hundreds of IT projects in one company, senior management ends up using next to meaningless measures and KPIs of IT performance such as headcount. 

It is a paradoxical situation that the department who supplies all other parts of a  business with software systems able to track a vast amount of KPIs should have difficulties measuring its own performance.

People make the difference

The problem with headcount, explains Hedaa in his book Nucleon – The missing formula that measures your IT development team’s performance – is that in IT, more than in any other department, people make a lot of difference. One average IT specialist, ranked with a “5” on a scale from 1 to 10, can perform five times more than a “1”, that is, a person who lacks motivation and is unsuited for the job. Going from a “5” to the top level, the difference becomes much more impressive. A “10” will perform at a level that is 20 times that of an average IT specialist. This means  you can reduce the number of employees substantially when you hire the right persons – people with the experience, skills, professionalism, intelligence and capacity to do the job much more efficiently than others. This is where Hedaa claims that savings as high as 88 percent can be achieved. 

Team effectiveness and other factors have an impact on productivity

As mentioned before, people do not work in isolation. In IT, the job is organized in projects and allocated to teams. Team effectiveness can either reduce or increase performance, depending on how teams are organized. In IT, small teams of no more than 7 persons are optimal. Team effectiveness, in turn, is dependent on other factors such as proximity to project leaders, methodology, IT architecture, and bureaucracy, to name just a few. That is  why companies will not be able to reduce spending with 88 percent but can at least expect to save 50-60 percent, according to Hedaa. 

Companies should measure IT performance

Hedaa claims that companies can and should measure IT performance much more accurately, using validated and proven methods. This is what Hedaa and his team already do, both when assessing people or when evaluating  the factors that impact people’s performance. To keep track of all relevant KPIs, Hedaa has developed an algorithm, the Nucleon formula, thus making it possible to track and compare individuals, team effectiveness, and company performance.

The beauty of the Nucleon formula, besides providing an accurate measure of IT performance, is that it is a tool that can be understood and used by people outside of IT. 

Which are the KPIs?

In general terms, performance is determined by a combination of people, how they are organized, and the complexity of their IT environment. These three categories are then divided into nine performance drivers. Learn more in the article: Start measuring your IT performance with the right KPIs